The Bitcoin alternative Ripple is not just a cryptocurrency like Ethereum. Ripple sees itself more as a platform for exchanging money – either crypto or traditional currency. Therefore, Ripple is sometimes referred to as blockchain for banks. This is the biggest difference between Ripple and other Bitcoin alternatives: where the other systems follow the ideology of making banks and financial institutions obsolete, Ripple wants to integrate middlemen into the network. Banks should be able to handle even international transfers within seconds.
Ripple’s network (which is another difference between them and other alternatives) is not decentralized: the system’s pillars are publicly accessible databases. It records every single transaction, and the register is located on several globally-distributed servers, constantly being compared to one another by a consensus algorithm. Ripple is less about money than debentures. So-called gateways – usually banks – then make exchanges in the usual currencies.
However, Ripple also has its own cryptocurrency: XRP, or Ripples. The price of Ripples is very low compared to other Bitcoin alternatives and its value is less than half a dollar. This is mainly because Ripple has the most coins in circulation of any altcoin (including Bitcoin). The developers originally generated 100 billion XRP, and according to protocol, this number should not change. However, not all these ripples are still in circulation. Spectators are trading with XRP as well as other cryptocurrencies, but Ripples have two roles within their network.
On the one hand, the currency is the only trade item within the network that does not require confidence. To understand this, you need to keep the basic principle in mind: debts (or IOUs) are exchanged between the gateways using Ripple. For example, if a user wants to send money to another person, he or she pays it to a gateway. The gateway however, does not send the amount but instead instructs the receiving users’ gateway to pay the money. This means that one gateway is then in debt to the other.
This requires trust between the negotiating parties. If this cannot be achieved, additional gateways can be interposed, which then trust each other. However, this chain of trust increases transaction costs. In a situation like this, you can switch to XRP to convert the actual amount and transfer values directly, within seconds.